Ottawa/Alberta pipeline deal—a high-risk road with many bumps ahead

Back in November 2025, the federal government and the Alberta government jointly announced they’d come to an agreement—a Memorandum of Understanding (MOU)—that would create a pathway for Alberta to get a pipeline built to carry oilsands production to lucrative markets in Asia. It was not, as I wrote at the time, a particularly good deal on the part of Alberta or its energy sector. Lots of hard promises by Alberta, and mostly vague promises by Ottawa.

And even then, federal approval of even the prospect of a pipeline to the Pacific came with a lot of strings attached. Among other requirements, the Alberta government would agree to fall in line with federal climate policies, which include “net-zero” by 2050, increasing its provincial carbon taxes, supporting the federal government’s new electrification strategy, and most importantly undertaking the “Construction and financing of the world’s largest carbon capture, utilization, and storage (CCUS) project (Pathways) for the purpose of making Alberta oil among the lowest carbon intensity produced barrels of oil in the world.”

Then earlier this month, on July 7, the Alberta pipeline saga took its next step forward when Prime Minister Carney and Premier Smith announced a specific agreement to advance the new million-barrel-per-day pipeline proposal toward the federal Major Projects Office, which will assess the project. That agreement, however, was not for the privately-funded pipeline originally envisioned in the 2025 MOU.

Rather, the new proposed pipeline will primarily be a government infrastructure project funded by taxpayers via the Alberta Petroleum Marketing Commission (a provincial Crown corporation) and the Trans Mountain Corporation (which is owned by the federal government), with advisory input (and perhaps minority investment) from Pembina Pipelines and First Nations representatives. Direct profits from the pipeline will flow primarily to governments, not Alberta’s private energy sector.

Finally, on July 12, the capstone of the deal was announced—an agreement between Alberta, Ottawa and a consortium of five major Canadian oilsands producers (the Oil Sands Alliance) to build the huge Pathways carbon capture and storage initiative that will (indirectly) “decarbonize” the new oil slated to flow through Alberta’s future pipeline to the Pacific.

Good deal? Mission accomplished? A triumph for Alberta’s energy sector, its entrepreneurial shareholders, investors and energy companies? To answer those questions, consider these points.

First, even with the obligation to build Pathways, the Alberta government must still move forward with its previously promised higher industrial carbon taxes. And the pipeline becomes less a private-sector market-driven project and more a government infrastructure project cost-shared by the provincial and federal governments.

Second, rather than flowing into Alberta’s private energy sector and investors, returns from the new pipeline will flow mainly to the provincial and federal governments, which promise to return those profits to the public in government services.

And, as I show in a recent study published by the Fraser Institute, this entire Pathways initiative is pretty risky business. While the basic idea of capturing, liquifying and reinjecting carbon dioxide to enhance oil field production has a long history, the idea of capturing it and burying it without using it to generate additional oil production (and profits) has only seen some pilot projects of mixed success around the world. Most of those pilot projects underperformed at capturing and storing carbon dioxide emissions, while costing significantly more than expected. Initial estimate costs of $12.5 billion for the Pathways project have already ballooned north of $30 billion. And as a government project, the risks for the endeavour will land on taxpayers, not voluntary investors.

But the bargain has been struck. Alberta gets (maybe) its last big pipeline and Ottawa gets, with Alberta’s submission, a much greater role in shaping the future of Canada’s energy sector. Only time will tell if the grand bargain leads to any oil production at a price worth flowing into the new pipeline. But experience with past government-sector takeovers of private energy projects suggests it’s a high-risk road with many bumps ahead.